Thursday, June 28, 2012

This morning, I spent 20 minutes reviewing the public record available on-line through the Clerk and Comptroller of Palm Beach County. Since 1999, between the two of us we have bought five properties and sold one. We also have refinanced various mortgages three times. As such, there is a plethora of public records (deeds, mortgages, satisfactions, etc.) with our names on them.

The most interesting find was the MERS recordation for our home mortgage. If you pay attention to the mortgage foreclosure mess, you probably have heard of MERS (Mortgage Electronic Registration System) which permits the big banks to get around transferring or assigning a mortgage each time its sliced, diced and sold as a mortgage backed security.

Sadly, looking at all this information, I realized that since June 2004 (when we purchased our primary home) we have only paid down the principal of our home mortgage by $53,240. We have made more progress on the principal since we refinanced the mortgage in 2009 and since we have been paying extra principal this year and last year.

Tuesday, June 26, 2012

Yesterday, I posted about a recent study regarding how many of us have savings set aside for an emergency.CNN did a follow up story and posted a selection of responses to its query regarding where all the money goes.

Lots of people posted that the average American claims no money to save, but that Americans still have lots of money for flat screen televisions, iPhones and expensive coffee. Let's call these people "squanderers."

Other people posted that they have no money to save because all of it goes to the cost of raising a family. Let's call these people "family first."

And others blamed the economy, meaning that they had a reduction in income or someone in the family lost a job and they can't save a penny because all money goes to the cost of living. Let's call these people "broke."

Finally, there was a category of people who are doing just fine, with a good stream of income, living the high life and therefore don't feel the need to save. Let's call these people "pay checkers."

Over the next few days, I'm going to post my thoughts on each category of people and think of ways that they can start saving.

Monday, June 25, 2012

With Tropical Storm Debby swirling off the west coast of Florida it was a rainy weekend here in South Florida.

Speaking of rainy days, 3 out of 10 Americans don't have any emergency savings. Only 25% had the recommended six (6) months of expenses saved up, 21% had some money in emergency savings but not enough to cover three (3) months of expenses.

At present, we have $17,683 in our emergency account at ING and another $1000 in our Wells Fargo savings account (which is also part of our emergency account). And, we have another $6000 in our primary home escrow savings account (we don't let the bank escrow for us, we do it ourselves) that we could tap in a real emergency. Including the extra funds in our escrow account we have just over 6 months of basic living expenses (not including any expenses for our rental properties). Not counting the extra escrow account monies, we have 4.5 months of basic living expenses.

We escrow for our property taxes and our home and wind storm insurance. Each month, we have an auto transfer to our ING escrow account in an amount that covers 1/12 of the amount we need for these expenses. However, when the bill comes in, I often try to pay part or all of the bill from money already available in our checking accounts rather than tap our ING escrow account. As a result, we have extra money in our escrow account that we could tap if need be. I sort of count that money as a house emergency fund, meaning if we had a house emergency we would tap that escrow account. We will soon be tenting our home, termites, so that expense might be paid in part of full from the ING escrow accounts.

One of our goals for 2012 was to add another $10,000 to our emergency account, at present we have saved $4800 towards that goal and we are generally on target to meet that savings goal. By the end of 2012, assuming we meet our goal, we will have $22,900 in our ING savings alone which will give us 5.5 months of basic expenses.

Friday, June 22, 2012

At present, we have one credit card, a Chase Freedom rewards credit card. As you know, if you follow this blog, we don't use credit on a day to day basis. Instead, we use credit for travel and business related expenses. And by business, I mean primarily relating to our full time jobs and not our real estate investments. Although, at present we do have some, rental property related, AC repair charges on the card.

The Chase Freedom card provides a 1% cash back rewards on all purchases, and then 5% cash back on certain category of goods and services changes on a quarter basis. And for the quarter beginning on July 1, 2012 the 5% cash back rewards are for gas and restaurant charges.

I don't normally chase reward points because it goes against our philosophy of: (1) avoiding debt; (2) no credit for day to day purchases; (3) the zen of our allowance system; and (4) the zen of sticking to present dollars in our present day to day life. So, I never seek out the 1% cash back in day to day transactions, but we do put large purchases on this card, i.e. A/C repair, Mr. Sam's recent certification classes, etc. to get the rewards (thereby getting a discount). We do pay off the credit card in full without incurring interest fees since to do otherwise would wipe out any rewards benefit.

But, I'm tempted on this one (which is, of course, Chase's goal) to at least put gas on my credit card for the next three months. I figure that our gas expenses are not going to be influenced by the carrot of reward points. Our gas costs are what they are and if I'm not increasing my spending in this category, it probably makes sense to get that cash back.

What say you? Do you chase rewards regularly, on a case by case basis, or never?

Closing in on the half way mark for the year, we have caught up a bit more on our 2012 savings goals. At present, we are $1725 behind on our goals. The extra pay period in May helped us make up some of the deficiency that has taken root earlier this year. But otherwise, we have just been trying to keep adding to our accounts by Snowflaking on a regular basis and with any extra founds hanging around at the end of a pay period.

Thursday, June 14, 2012

Interesting to learn that money causes the most arguments between couples. And since June is the most popular month for Weddings, it seems appropriate to revisit this issue.

Only 43 percent of couples talked about money before marriage, according to a May 2010 survey conducted for American Express.

Have the money talk. Mr. Sam and I had, what we call a financial summit, before we bought a house together (this was before we got married). We sat down, with no distractions, and we each brought information regarding our current assets, current debts and a copy of our credit report, and a pay stub and talked through each of those categories. No it wasn't romantic and there was some embarrassment on both sides of the table, but it was a very helpful step in our financial realtionship.

Be up front about your financial situation, have the "money talk" long before the big day, and tackle any challenges as a couple.

Yes, we had the money talk before our wedding. But we continued to keep our finances separate until we married. We did set up a joint house account, and we calculated, by income, what percentage each of us would put into the house account to cover the mortgage, insurance, utilities and joint expenses of living together. I took over the task of paying joint expenses since Mr. Sam wasn't great about paying his bills on time.

It's helpful to have basic guidelines in place that will keep you on the same page. For instance, purchases under a certain dollar amount can be left to each spouse's discretion, while larger ones should to be cleared with your partner.

We work from an allowance system, each of us gets the same amount of money, X2 a month, for discretionary spending. We also have a rules system. Any purchase over $300, even if spend from allowance money, requires a discussion and agreement between the two of us. We also use the $100 rule, any purchase over a $100 requires a day's cooling off period for each $100. So, a $600 purchase, requires a discussion, agreement between the two of us and a six day waiting period.

Some couples might be comfortable pooling all of their money, and others may not; neither is the "right" choice, but that should be decided explicitly.

We use a his, hers, ours system. We each maintain our own account for our allowance money and then we have an ours account for our joint spending, saving and bill paying.

If you are in a co-habitation or marital relationship, what systems do you use, what works and what doesn't work for you and your significant other?

Wednesday, June 13, 2012

Following up on my earlier Balance of Power post there was a timely article regarding states that had the biggest drops in net worth. Guess which state made the list . . . Florida.

The very interesting underlying report* from the Federal Reserve can be found here. The data and charts are fascinating.

The decline in median income was most pronounced among more highly educated families, families headed by persons aged less than 55, and families living in the South and West regions.

Well that would be us, highly educated, less than 55 and in the South. And, no my income has not recovered to 2008 levels.

The decreases in family income over the 2007−10 period were substantially smaller than the declines in both median and mean net worth; overall, median net worth fell 38.8 percent, and the mean fell 14.7 percent.

So, that is the good news I guess. Incomes didn't fall as hard as net worth. Average net worth is now down to the level found in the early 1990s. So almost two decades of progress was wiped out for average families.

Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices. The decline in median net worth was especially large for families in groups where housing was a larger share of assets, such as families headed by someone 35 to 44 years old (median net worth fell 54.4 percent) and families in the West region (median net worth fell 55.3 percent).

Well, that would be us, for sure, we have lost almost $200,000 in our real estate investments (that doesn't include our primary home, which also lost value). As mentioned in prior post, we were heavily weighted in real estate before the bubble popped so we have taken a major hit in our net worth due to the real estate collapse.

*I find the title of this survey to be ironic. We are only consumers in the eye of the Federal Reserve.

Tuesday, June 12, 2012

According to this article from msnbc.com Gallup found that the median amount of savings, real estate holdings and other investments Americans would want to have in the bank in order to feel rich was $1 million.

I thought this was an interesting tidbit, since Sam, Inc. has been over the $1 million mark for six months running. And guess what, I don't feel rich and Mr. Sam's favorite saying is "we must be the poorest rich people ever."

Mr. Sam's saying comes from the fact that we restrict how much we can spend via our allowance system and our rules. So its hard to feel rich when you have to pay attention to how much you are spending otherwise you'll run out of funds. I think I probably feel the same way, you are "rich" when you can spend without thinking or without care. We, on the other hand, have gotten to this point only because we think about our day to day spending every day (just about).

I also think that your target income or target net worth is driven by your peers, and by what you see in your circle of reference. I blogged about this back in December when I was at a "ladies who lunch" charity event on Palm Beach. A person's normal changes over time. So while I am very happy that we have reached the $1 million mark, and recognize the hard work and discipline it took to get to this point, I don't feel rich at all.

What say you? What is your target number for income and net worth in order to feel rich?

Monday, June 11, 2012

For a very long time, our investments, and our net worth, were heavily weighted towards real estate.

But due to the real estate bust here in Florida, many of our properties lost considerable value over the last few years. It appears that the market, maybe, has found its bottom because prices have started to inch up and housing stocks are way down. But, our properties are filled and paying for themselves. And by paying for themselves, that means that our tenants pay the mortgage and other costs. That is the joy of rental property, someone else pays the mortgage.

In June of 2008, our real estate investments were valued at $460,018 (valuation less outstanding debt). As for our retirement/investment accounts, in June 2008 they were valued at $290,145 (this is just before the market tanked in the fall of 2008).

Now, 4 years later, our real estate investments are valued at $287,810 and our retirement/investment accounts are valued at $521,634.

We have made good progress in the last few years in our retirement savings by (1) maxing out all our accounts, (2) buying some great stocks and funds at bargain prices in 2009 and 2010, (3) by taking advantage of Mr. Sam's company match.

Is it painful to lose $172,208, in 4 years, in the real estate market? You betcha! But really, we haven't lost that money, yet, because we have not sold any of our real estate holdings. In the mean time the properties are filled and paying for themselves (although looks like one of our tenants will be leaving in September). I am hopeful that the Florida real estate market has found its bottom and over the next 10 years the properties will appreciate to the point that we can make a profit.

At present, we are about $2600 behind on our 2012 goals. We have made some progress in catching up during May, as I though we could, because I was paid three times last month. We need to keep pressure on the 2012 IRA goal this month. I've also started saving towards the trading account fund, which may end up being extra savings and not utilized for trading.

Tuesday, June 5, 2012

I just returned from another fabulous, annual Memorial Day weekend girls trip. The trip was expensive, nice hotel, pricey flight, fabulous 5 star dinners every night. But, as you know, I plan for these trips and put away money each month for our travel expenses. So this trip came in on budget, but it still was an expensive outing especially in light of the fact that Mr. Sam may not have a job at the end of the year.

While we did some great browsing in some great galleries and boutiques, I didn't actually buy anything on my trip. I was interested in a hand made regional flavor basket, that would cost between $200-$300 (depending on size). I decided not to buy it in the touristy area because I figured, and I was correct, that I could find a better price away from the hustle and bustle. Then I was in a gallery and found a large piece of original art that I fell in love with. In the gallery, it was priced at $750, but on-line it is priced at $625. Plus, I'd have to pay shipping which would tag on another $50 or so, but I don't have to pay sales tax. So all together it would cost around $675.

I'm not a huge fan of Suze Orman but I've always liked her "Can We Afford It" segments. So this is my version of Orman's can I afford it.

Now, we don't have any unsecured debt, but we do have lots of mortgage debt. However, at present, all of our investment properties are rented and paying for themselves. We also have almost $18,000 in our emergency fund.

But, the elephant in the room is Mr. Sam's job. We know there is a good chance that he will lose his job at the end of the year. As a result we've been spending big dollars on some certification classes for him and therefore we are behind on our 2012 savings goals. More importantly, we probably should be saving even more because of the high probability that Mr. Sam will be unemployed.

And putting that all aside, there are other home projects, i.e. plantations shutters and other improvements, that we could use this money for.

Friday, June 1, 2012

So, since January 2012 our next worth has been above, and more importantly stayed above the $1 million mark. Why? I would say its a combination of factors. First, the stock market has generally been up (although not the last 4 weeks) so our retirement monies are up. Second, our real estate holdings have generally stabilized, three are not worth what we paid for them, but the bleeding has stopped. In my county, prices have been trending up over the past six months and the available inventory has shrunk and sales are way up. Third, we keep saving quite a bit of money and chipping away at debt each month.

All of this may change, as Mr. Sam's job may go away between September and December. So, we'll enjoy it why we can and we'll keep saving assuming that he will be unemployed by the end of the year.

Sam in the news

Details Regarding the Numbers

We don't use credit cards for day to day spending, we use our debit cards (easier to track than cash). We work off an annual spending plan, our form of a budget, and an allowance system for our day to day spending.

We own three investment properties, plus our primary home, in South Florida. We also own land up north. Our only debt is mortgage debt, but with multiple properties, we have quite a bit of mortgage debt.